Wynn debt rating in line with rivals

Thursday, Oct. 10, 2002 | 11:10 a.m.

Standard & Poor's has assigned high-risk ratings to debt that will be used to build Steve Wynn's $2.4 billion Le Reve casino resort on the Las Vegas Strip.

The ratings are the first independent view of the financial outlook for the massive project to be built on the site of the former Desert Inn hotel-casino.

The New York-based credit rating company on Wednesday assigned its B corporate credit rating to Wynn Las Vegas LLC and its B rating to the company's proposed $1 billion senior secured bank credit facility.

In addition, Standard & Poor's gave a CCC+ rating to the proposed $340 million second mortgage notes due in 2010 to be issued by Wynn Las Vegas LLC and its Wynn Las Vegas Capital Corp. subsidiary.

By the company's standards, the ratings reflect speculative-grade "junk bonds" indicating a high risk for investors. Junk bonds also were used to build many of the resorts on the Strip including, recently, the Venetian and the Aladdin.

Standard & Poor's defines a B rating as vulnerable to adverse business or economic conditions that "will likely impair the insurer's capacity or willingness to meet its financial commitments." The company's ratings are AAA -- the best -- AA, A, BBB, BB, B, CCC and CC.

The CCC+ rating on the second mortgage notes is defined as "currently vulnerable and is dependent upon business, financial and economic conditions to meets its financial commitments."

By comparison, a few of Las Vegas' largest casino companies, including MGM MIRAGE and Harrah's Entertainment Inc., have BBB- bond ratings, which are not the best, but are still considered investment grade.

Standard & Poor's analyst Michael Scerbo said Wynn's track record in developing profitable resorts like the Mirage and Bellagio were considered in determining the ratings.

Scerbo said today the bond rating company considers the venture risky because construction delays or cost overruns could dramatically increase the overall cost of the project. He said ratings could be lowered if the property fails to meet cash-flow expectations and Wynn's company faces liquidity problems.

But the ratings agency is giving Wynn credit for his track record of attracting tourists and gamblers in huge numbers to the Las Vegas resorts he has created.

"Standard & Poor's believes that the quality of Le Reve's amenities, the lack of new property openings over the next few years and experienced operating management will likely drive hotel room rates and gaming volumes to levels consistent with other top-performing Las Vegas Strip operators over time," Scerbo said in a statement Wednesday.

Wynn, who acquired the Desert Inn property after engineering the sale of Mirage Resorts Inc. for $6.4 billion to MGM Grand Inc. in 2000, built The Mirage with speculative-grade bonds.

MGM Grand and Mirage Resorts eventually became MGM MIRAGE, which in Southern Nevada owns The Mirage, Bellagio, Treasure Island, the MGM Grand, New York-New York, the Golden Nugget, Boardwalk, half ownership of the Monte Carlo and three casino-hotels in Primm.

Wynn acquired the Desert Inn in 2000 for $270 million and imploded one of its towers to prepare for construction of Le Reve, a 2,701-room resort Wynn says will be more elaborate than Bellagio.

The resort also would have a 111,500-square-foot casino and a mix of high-end retail stores including Maserati and Ferrari car dealerships, a first on the Strip. Wynn and his wife, Elaine, also would have their private art collection at the resort.

The bonds rated by Standard & Poor's are part of a massive financing package for the hotel-casino, the most expensive development ever planned in Las Vegas. In addition to the $1 billion bank facility and the $340 million second-mortgage notes, the company and its affiliates will have a $188.5 million furniture, fixtures and equipment loan facility.

The company also has registered with the Securities and Exchange Commission for an initial public stock offering.

Standard & Poor's said the bank facility and the second-mortgage note issue are contingent upon the successful IPO or some form of alternative equity infusion.

The proposed $340 million second-mortgage notes, the company said, are to be secured by a second-priority lien on all collateral securing the bank facility and the notes will be secured by all the Wynn subsidiaries. The significant amount of bank debt in the capital structure is the reason those notes are two notches below the corporate credit rating, Standard & Poor's said.

Assuming Wynn borrows the maximum available, Standard & Poors said his company would have more than $1.5 billion in debt and some $130 million in annual interest expense.

Wynn executives are out of town on a "road show" for the IPO and could not be reached for comment. The company has not commented on the project for several weeks citing SEC "quiet period" restrictions on stock offerings.

Another major credit-rating company, New York-based Moody's, has not yet issued ratings on Wynn's companies.